Kauskik Basu's Paperback Edition of His Interesting Book on the Weaknesses of the Invisible Hand

Kaushik Basu, Chief Economist and Senior Vice President of the World Bank, wrote (2011) “Beyond The Invisible Hand: Groundwork For A New Economics”, Penguin (paperback), Princeton University Press (hardback) asserts its claim to be a book that encourages its readers to question the underlying basis of modern economic thought and proves that creating a more equitable society is what we should strive for.  HERE http://www.flipkart.com/beyond-invisible-hand-groundwork-fo/p/itmczyrraryfjkpv

“Beyond The Invisible Hand: Groundwork For A New Economics pokes at one of the core principles underlying modern economics. The principle is that, under certain conditions, if individuals pursued self-interests, it would result in social good, as though planned by an invisible hand. This principle, which was first put forth by the great economist Adam Smith, has been wrongly applied to economic scenarios over the past two centuries. It has been contorted, taken out of context, and treated as the basis for the free-market theory.

In this book, Kaushik Basu tackles the misrepresentation of Smith’s philosophy and bluntly explains the implications of taking this philosophy out of context. He argues that today, our knowledge of how economies work, why some economies succeed and others fail, and what the nature and role of state intervention might be, is hampered by this misrepresentation. He draws upon Kafka’s view, in which individuals who pursue self-interests without a guiding moral compass create a miserable and mean world, and compares this to the view of the invisible hand. He calls for a shift in attention from an economy that’s efficient to an economy that’s fair.”

Comment

I append my previous comments on Kauskik Basu's book I have made on Lost Legacy since 2010.  My views of it remain that Basu's book is interesting and worth reading, but his adherence to the myth that modern economists correctly founded their inventions on Adam Smith's use of the Invisible Hand metaphor are unfounded and confuse Basu's clear understanding that, in effect, the invisible hand does not exist as modern economists' believe it be.  Neither does it gain  credibility from recasting the metaphor as a simile.  

1. “Kaushik Basu Responds to My Review of His Book”, 24 March, 2011:

“I am reading a most interesting and, from the point of view of Lost Legacy, a most significant book. I refer to Kauskik Basu’s new book, published this month by Princeton University Press.

“What makes it so interesting to me is its approach. It accepts, indeed celebrates, the Adam Smith ‘myth’, namely the one created by modern economists from the 1950s, that Adam Smith’s use of the metaphor of the “invisible hand” was a “great idea” directly linked to the modern derivation of the Welfare Theorems embedded in mathematical theories of general equilibrium (Arrow, Debreu, etc.). Basu does this without in any way realising or accepting that this myth is itself a myth …

… Its author has stepped towards my criticism of the modern myth, albeit without accepting my position on it, by showing that the modern myth has misled economists into confusing their models with reality (the economy does not function as their maths appear to indicate) and by re-drafting what is closer to what really happens (which “entails a leap of imagination”), he will show where the “Invisible Hand Theorem” ceases to hold, and why. I shall report on how he sets about this, because Basu’s book is the first serious study of the modern myth related to the ‘Invisible Hand’ I have seen anywhere.”

“I shall return to these issues as I read on. Basu's comments in these fields are worthy of your attention, and I continue to commend his new book to readers.”

2.  “Both Blurb and Book in Error”, 6 December, 2011:

“The blurb sums up the book neatly and also why I am so critical of what could have been a greater book. Kaushik Basu writes as if he is certain that his central error is absolutely – no questions about it – the historical truth. It isn’t; it is a myth crafted by those who wanted to give their remarkable constructions (in the sense of mathematical beauty) a pedigree going back to what they made out to be the hallowed memory of Adam Smith. But unintentionally traducing it.

Their genius in formulating the mathematics of general equilibrium (worthy of Nobel memorial prizes) was indeed an achievement, which nobody can deny, but was sullied (in my humble view) by melding GE with Pareto optimality and then blessing it, unnecessarily, with the innocent use by Adam Smith of a popular 17th – 18th century metaphor of ‘an invisible hand’.

That Smith referred to an entirely different subject, which has not yet occurred to Kaushik Basu, who makes the classic mistake of taking the statements in the literature on trust, though they are in Smith’s case, checkable - his books are widely available but not read. There are no prizes for being right on Adam Smith; however, there are prizes for accepting a paradigm in our peer-reviewed journal publications, i.e. (where N[p-rjp] = tenure, etc.).

To be brief: Adam Smith’s example in Wealth Of Nations refers to ‘every individual’ who prefers “domestick industry” to that of “foreign industry”, “render[s] the annual revenue of the society as great as he can”, which is a quantative measure that says nothing at all about “harmony”, “perfect competition”, “distribution”, “matching demand with supplies”, “equilibrium”, poetical or general, or any other condition remotely akin to Pareto optima or the Welfare theorem.

Smith’s example of the “invisible hand” (in his case, the “insecurity” felt by traders for foreign trade) adds to what we call GNP – the whole is the sum of its parts, that’s all. On the grounds that growing GNP promotes opulence and, of necessity, because growth increases the labour that is employed, growth achieves a “public benefit’ in Smith’s lexicon.

It was a post-war invention that Smith’s “self-interested behavior by individuals leads them to the social good, almost as if orchestrated by an invisible hand”, especially that it is formulated by Kaushik Basu (and Samuelson, et al) as “selfish” behaviour , which is an idea antipathetic to Smith’s moral sentiments.

For these reasons Kaushik Basu is not that much different from the “conservative popularizers” he complains about who “have misrepresented Smith's insight and hampered our understanding of how economies function, why some economies fail and some succeed, and what the nature and role of state intervention might be”.

If Basu had left Smith out, or better still if he had used the authentic Adam Smith to good effect in support of his justified criticism of the modern paradigm, his “Beyond the Invisible Hand” would be a better book.”

3.  “New Critique of Modern Myth of the Invisible Hand: Part Two” (29 November, 2010)

Kaushik Basu’s critique of neoclassical economics (of which I am broadly sympathetic) is spoiled by its basic flaw of importing the false premise that the first welfare theorem had somehow been inspired by something from Adam Smith’s use of the metaphor of ‘an invisible hand’, and, therefore, it is safe to associate the assertions drawn from this error by neoclassical economists as fundamental errors attributable to Adam Smith.

Basu has not considered the possibility that neoclassical economists were wholly in error to draw such a link to Adam Smith.

Worse, as a consequence, Kaushik Basu in his own critique of neoclassical economics, he ignores much of Smith’s writings on the self-interest of individuals, its mediation in social contact with others, on the definite moral limits to competitive behaviour, on the immorality of greed (a ‘vile’ characteristic ‘the rulers of mankind’, for which, sadly there was ‘no remedy’) and his oft expressed view that those who laboured and upon whom the rest of society depended were entitled to a fair share in what they produced. He also believed that ‘opulence’ from ‘improved (non-feudal) agriculture’ and the promise in commercial society could bring this about – we call it affluence.

Those associated with ‘market fundamentalism’ and, implicitly, the status of so-called ‘Homo economicus’, a mathematical abstraction unknown to anthropology, let alone to Adam Smith who was, incidentally, someone accomplished in mathematics, according to his contemporaries, were carried away in their ideological contest with the greater errors of Marxist contemporaries in the 1930s and during the Cold War decades.

None of the neoclassical triumph was remotely related to the works of the Adam Smith born in Kirkcaldy. An invented Adam Smith may have been ‘alive and well in Chicago’ and known to George Stigler, but he remains unknown to readers of Smith’s Works and not just those familiar with few well-worn quotations absent their context.

The great deception began to take root in the classrooms of our universities and received an immense boost from Paul Samuelson, right lauded as a brilliant exponent of the mathematical approach to economics, as a ‘science’. He wrote:

“[He] was so thrilled by the recognition of an order in the economic system that he proclaimed the mystical principle of the ‘invisible hand’: that each individual pursuing only his own selfish good, was led as if by an invisible hand to achieve the best good of all, so that any interference with free competition by government was almost certain to be injurious” (Samuelson P. A. 1948, ‘Economics: an introductory analysis’, p 36, McGraw-Hill).

Kaushik Basu buys this transmutation of what Adam Smith actually wrote and presents it as a ‘central opinion’ which is:

‘a body of intellectual material that describes how a modern economy functions, and assures us that as a system, the current world economic order, founded on individual selfishness and the “invisible hand” of the free market, is right or, at any rate, the best among what is feasible. It may not always function as it should but as an ideal, it is the right one to pursue and uphold” (Basu, K. p4).

There are two problems here. First, both Samuelson (1948) and, 62 years later, Basu (2010), unforgivably, were factually wrong, not about an obscure 18th-century author’s written views, but about, arguably, the world’s most famous name in economics, his works widely available in multiple languages and available in most libraries and online. So no excuses then. Moreover, these works of Smith were also available widely to most other economists.

Secondly, the expressed errors of the two authors above, are also endorsed by most economists both in what they claim Smith wrote and in what many others, including Kaushik Basu, assert is wrong with the ‘central opinion’ of modern economics supposedly based on the mythical views of Adam Smith.

The alleged views of Paul Samuelson and Laushik Basu on Adam Smith including the central myth of Smith’s use of the metaphor of ‘an invisible hand’ are not based on facts.

All this detracts from the chapters that follow in Basu’s new book, which I am now reading. Much of the criticism he now refers to against neoclassical economics are familiar to those who have read wider than the diet of mathematical abstractions that passed as the qualifying criteria for worthiness in our discipline.

I shall return to these issues as I read on. Basu's comments in these fields are worthy of your attention, and I continue to commend his new book to readers:

Comment by Kaushik Basu:

“Beyond the Invisible Hand challenges readers to fundamentally rethink the assumptions underlying modern economic thought and proves that a more equitable society is both possible and sustainable, and hence worth striving for. In Beyond the Invisible Hand, Kaushik Basu lays bare the implications of this gross misrepresentation of Smith’s theory which, he argues, has resulted in hampering our understanding of how economies function, why some economies fail and some succeed, and what the nature and role of state intervention might be.
Kaushik Basu”

4. “Kaushik Basu's New Book a Must Read” (Lost Legacy”: 2 May 2012):

“I am reading a most interesting and, from the point of view of Lost Legacy, a most significant book. I refer to Kaushik Basu’s new book, “Beyond the Invisible Hand: groundwork for a new economics”

What makes it so interesting to me is its approach. It accepts, indeed celebrates, the Adam Smith ‘myth’, namely the one created by modern economists from the 1950s, that Adam Smith’s use of the metaphor of the “invisible hand” was a “great idea” directly linked to the modern derivation of the Welfare Theorems embedded in mathematical theories of general equilibrium (Arrow, Debreu, etc.). Basu does this without in any way realising or accepting that this myth is itself a myth.

Basu’s interpretation is a misreading of what Adam Smith wrote, as shown countless times on Lost Legacy. The modern myth creates an edifice without foundations. Smith never said what the modern myth requires him to have said – it is a backward projection of modern ideas onto a text that does not support them.

He also presents his version of the modern myth with a startling admission: “it is sobering to recall that [Smith’s] theory of the invisible hand would remain a conjecture for close to two centuries after the appearance of his classic, An Inquiry into the Nature and Causes of the Wealth of Nations, despite the copious writings by Smith himself and his successors in political economy” (p 9). This fact, which is endlessly reported on Lost Legacy, is challenged by modern economists, such as Daniel Klein and David Friedman to mention two distinguished scholars who have appeared on this Blog, and many others at the seminars I have addressed since 2005.

By interpreting what Smith ‘really meant’ or ‘implied’, such critics can and have loaded Smith with the burden of their imaginative assertions about Adam Smith’s meaning, mainly from later authors, but not with definitive evidence in Smith’s texts. Basu adds: ‘It took mathematical economics, and the research of Kenneth Arrow, Gerard Debreu, Lionel Mackenzie and others for it to be given formal shape and proof’. This is roughly where Samuelson introduced the first of his 4½ millions readers of his popular textbook, Economics (1948, p 36: McGraw-Hill), to an early version of the modern myth, and has repeated in through its 19 editions.

Basu also observes that: ‘it is surprising to most contemporary economists who have not read The Wealth of Nations to learn that the invisible hand theory is not central to Smith as it is made out to be” (p 10). Absolutely true, but from which observation Basu draws precisely the wrong conclusions. He suggests that the 19th-century ‘orthodoxy’ (his name for the modern consensus) of “John Stuart Mill and John McCulloch” (to which names he could add Malthus, Ricardo, Marx and almost all other writers after Smith) saw the role of the market absent an invisible hand guiding it.

Basu, however, is correct to note that the 19th-century treatment of Smith as a fundamental ‘free market’ ideologue (laissez-fare, night-watchman state, and all that), was false and so is the claim that the ‘proof’ of his so-called Invisible hand theorem, was a ‘mathematical vindication’ of his alleged ‘belief’ (p 11).

You can imagine my excitement as I read Kaushik Basu’s most promising book (I shall continue reporting on it for more posts on Lost Legacy and I encourage readers to obtain a copy and read I with me).

Its author has stepped towards my criticism of the modern myth, albeit without accepting my position on it, by showing that the modern myth has misled economists into confusing their models with reality (the economy does not function as their maths appear to indicate) and by re-drafting what is closer to what really happens (which “entails a leap of imagination”), he will show where the “Invisible Hand Theorem” ceases to hold, and why. I shall report on how he sets about this, because Basu’s book is the first serious study of the modern myth related to the ‘Invisible Hand’ I have seen anywhere.

I understand the political benefit of not attacking everything about modern economics to get a fair hearing from the profession – and I thereby excuse Basu’s intentions as stated in the first chapter – and I wait to read how he goes about his reconstruction of the welfare theorems for my final judgements.

5. “New Critique of Modern Myth of the Invisible Hand”, Lost Legacy 27 November 2010.

I am reading a most interesting and, from the point of view of Lost Legacy, a most significant book. I refer to Kaushik Basu’s new book, “Beyond the Invisible Hand: groundwork for a new economics” (Princeton University Press).

What makes it so interesting to me is its approach. It accepts, indeed celebrates, the Adam Smith ‘myth’, namely the one created by modern economists from the 1950s, that Adam Smith’s use of the metaphor of the “invisible hand” was a “great idea” directly linked to the modern derivation of the Welfare Theorems embedded in mathematical theories of general equilibrium (Arrow, Debreu, etc.). Basu does this without in any way realising or accepting that this myth is itself a myth.

Basu’s interpretation is a misreading of what Adam Smith wrote, as shown countless times on Lost Legacy. The modern myth creates an edifice without foundations. Smith never said what the modern myth requires him to have said – it is a backward projection of modern ideas onto a text that does not support them.

He also presents his version of the modern myth with a startling admission: “it is sobering to recall that [Smith’s] theory of the invisible hand would remain a conjecture for close to two centuries after the appearance of his classic, An Inquiry into the Nature and Causes of the Wealth of Nations, despite the copious writings by Smith himself and his successors in political economy” (p 9). This fact, which is endlessly reported on Lost Legacy, is challenged by modern economists, such as Daniel Klein and David Friedman to mention two distinguished scholars who have appeared on this Blog, and many others at the seminars I have addressed since 2005.

By interpreting what Smith ‘really meant’ or ‘implied’, such critics can and have loaded Smith with the burden of their imaginative assertions about Adam Smith’s meaning, mainly from later authors, but not with definitive evidence in Smith’s texts. Basu adds: ‘It took mathematical economics, and the research of Kenneth Arrow, Gerard Debreu, Lionel Mackenzie and others for it to be given formal shape and proof’. This is roughly where Samuelson introduced the first of his 4½ millions readers of his popular textbook, Economics (1948, p 36: McGraw-Hill), to an early version of the modern myth, and has repeated in through its 19 editions.

Basu also observes that: ‘it is surprising to most contemporary economists who have not read The Wealth of Nations to learn that the invisible hand theory is not central to Smith as it is made out to be” (p 10). Absolutely true, but from which observation Basu draws precisely the wrong conclusions. He suggests that the 19th-century ‘orthodoxy’ (his name for the modern consensus) of “John Stuart Mill and John McCulloch” (to which names he could add Malthus, Ricardo, Marx and almost all other writers after Smith) saw the role of the market absent an invisible hand guiding it.

Basu, however, is correct to note that the 19th-century treatment of Smith as a fundamental ‘free market’ ideologue (laissez-fare, night-watchman state, and all that), was false and so is the claim that the ‘proof’ of his so-called Invisible hand theorem, was a ‘mathematical vindication’ of his alleged ‘belief’ (p 11).

You can imagine my excitement as I read Kaushik Basu’s most promising book (I shall continue reporting on it for more posts on Lost Legacy and I encourage readers to obtain a copy and read I with me).

Its author has stepped towards my criticism of the modern myth, albeit without accepting my position on it, by showing that the modern myth has misled economists into confusing their models with reality (the economy does not function as their maths appear to indicate) and by re-drafting what is closer to what really happens (which “entails a leap of imagination”), he will show where the “Invisible Hand Theorem” ceases to hold, and why. I shall report on how he sets about this, because Basu’s book is the first serious study of the modern myth related to the ‘Invisible Hand’ I have seen anywhere.

I understand the political benefit of not attacking everything about modern economics to get a fair hearing from the profession – and I thereby excuse Basu’s intentions as stated in the first chapter – and I wait to read how he goes about his reconstruction of the welfare theorems for my final judgements.

Labels: Invisible Hand

 6. “A Largely Agreeable Review (11 March 2012) of Kaushik Basu on the Invisible Hand"

Last year, I reviewed “Beyond the Invisible Hand” by Kasuhik Basu on Lost Legacy and noted its author had failed to understand Adam Smith’s use of the IH metaphor, which largely compromised Basu’s critique of the problems that support beliefs in the modern invention of Smith’s actual meaning in using the metaphor. Basu accepts the modern invention without realising that neoclassical economics was a victim of its own false beliefs. Now, a critical review of the same book has been posted and I think a few comments are in order.

Oliver Mark Hartwich, a Research Fellow in the Economics Program of the Centre for Independent Studies in Sydney, Australia, reviews Kashik Basu’s Beyond the Invisible Hand: Groundwork for a New Economics, by Kaushik Basu (Princeton University Press, Princeton, NJ, 2011), pp. 273. HERE  Basu’s review was published in Economic Record (Sydney), Vol. 88, No. 280, pp. 156-158, March 2012.

“The title’s reference to the ‘invisible hand’ of course refers to Adam Smith’s notion, first proposed in the Wealth of Nations (1776), that individuals pursuing their own interests would also achieve outcomes that are beneficial to society at large.

Basu is careful to point out that Smith’s original idea contained qualifiers and warnings, which were left out by later generations of economists building on the concept of ‘the invisible hand’. This is most welcome since it has become commonplace, both by his admirers and his adversaries, to turn Smith into a caricature of himself. Basu recognises that Smith’s theories were far more elaborate and nuanced than perhaps suggested by the metaphor of the invisible hand.

However, having given this initial disclaimer, Basu falls into the same trap by identifying Smith’s original insight too closely with what neoclassical economics had made of his idea. First of all, it would have been worth a discussion of whether there is not in fact a distinction between self-interest and greed. Throughout Basu’s reflections, the two concepts of self-interest and greed seem almost interchangeable.

Second, and more importantly, Basu takes Smith’s concept of the invisible hand, which is very much an evolutionary concept of a dynamic market economy, and deals with it in a static perspective of equilibrium:

If we have a competitive economy, where all individuals choose freely according to their respective rational self-interest, then (given a few technical conditions) the equilibrium that will arise will be Pareto optimal. With a little bit of investment in algebra, this result can be proved as rigorously as any theorem in mathematics or axiomatic geometry. … This formalization was a major breakthrough in economics. (p. 19)

In this way, a metaphor from the colourful, non-mathematical world of classical economics is used as a synonym for the sterile and technical worldview of neoclassical economics. Poor Adam Smith!

What thus makes Basu’s critique of neoclassical economics odd is that the author himself remains locked in precisely the same methodology. Neoclassical economists frequently attempted to design models to render Smith’s ‘invisible hand’ more precise — arguably destroying its dynamic connotations in the process.

Basu attempts the opposite. In his book, he modifies the models in a way so as to show how Smith’s invisible hand fails to produce socially optimal outcomes. In doing so, he operates in precisely the same kind of equilibrium framework. …

If we want society to progress and economic development to occur, we need to nurture our innate sense of social values — such as altruism, trustworthiness, integrity, and a sense of fair play. And if we do not want the world to be fractured and broken up into oppressors and the oppressed, we should try to inculcate these values across all human beings and not just narrow in-groups, defined by race, religion, or nationality. (p. 119)…

… the author remains lost in the methodological framework of those economists he criticises and he only holds utopian dreaming against the perceived failings of a grossly distorted picture of free market economics.”

Comment

Much of Oliver Mark Hartwich critique of Basu’s book I agree with, except I would have been more specific.

“Adam Smith’s notion, first proposed in the Wealth of Nations (1776), that individuals pursuing their own interests would also achieve outcomes that are beneficial to society at large.”

This is not what Adam Smith wrote. It is what selected parts of paragraph 9 from Book IV, chapter 2, are massaged to appear him to be saying. Cutting through all the invented implications, Adam Smith’s point was that a specific set of merchants, but not all, because they felt insecure about sending their capital abroad in the “foreign trade of consumption” (detailed in paragraph 6), they preferred to invest in support of “domestick industry” (repeated thrice in paragraph 9), and in so doing they unintentionally added to domestic capital and employment. These were the public benefits mentioned by Adam Smith as an unstated consequence of the simple quantitative rule that the “whole is the sum of its parts”. Note that if the same merchants joined domestic cries for tariff protection and prohibitions, their beneficial actions would turn negative.

This simple, obvious and wholly sensible statement became, in the hands of modern economists (Paul Samuelson, et al), a general and wholly unwarranted assertion that “individuals pursuing their own interests would also achieve outcomes that are beneficial to society at large”. Adam Smith never said that at all. He was far too savvy to make an absurd generalization like that. Whether any individual’s actions when “pursuing their own interests” would have beneficial outcomes for “society at large” would entirely depend on the consequences of their actions. Whether actions motivated by greed (Mandeville, Ayn Rand, and others), were “beneficial” depends on circumstances. Indeed, Smith gives over 70 examples of non-beneficial outcomes for society from the actions of self-interested individuals in Books I, II, and III, of Wealth Of Nations and book IV is a detailed (and "violent") polemic against the self-interest actions of "merchants and manufacturers' that were decidedly non-beneficial for society at large.

In the specific and only case of "an invisible hand" that Smith gives in Wealth Of Nations, (Book IV, chapter 2, paragraph 9), he mentions a particular merchant’s “concern for his security” which "led" him to invest domestically, and he used the invisible hand metaphor specifically to refer to that “insecurity” which motive "led him by an invisible hand” to “promote an end which was no part of his intention”. [Neither the merchant's motive nor the metaphor of an invisible hand were linked by an intended consequence.  Quite the reverse.  The consequence was unintended!] It was a metaphor, not a general rule, or reference to anything that actually existed. Smith taught that all metaphors “describe in a striking and more interesting manner their objects” (Smith, Lectures on Rhetoric and Belles Lettres”, ([1763 1983, p 29).

The entire edifice of the so-called, invisible-hand mythology has been erected on a mere metaphor, “striking and more interesting” as it is – always the sign of a good metaphor! Kaushik Basu does not accept that, nor does the majority of the economics profession, none of whom, brilliant as they undoubtedly are, has ever shown that the invisible hand exists – it does not appear as a term in their superb equations. Like Warren Samuels, we should join him in seeking to “Erase the Invisible Hand”, and “elusive and misleading term in economics” (Cambridge University Press, 2011).

Finally, note well, Oliver Mark Hartwich’s last two paragraphs in his review, quoted above, about the utopian dream of designing major changes to how modern economies work, and bear in mind my Saturday Lost Legacy post on Adam Ferguson’s notion of social arrangements and of society at large being “the result of human action, but not the execution of any human design” (from earlier ideas of Oliver Cromwell and Cardinal de Retz).

5. “New Critique of the Modern Invisible Hand Theory Part 3

Beyond the Invisible Hand: groundwork for a new economics by Kaushik Basu, 2010, Princeton University Press

Moving on from the first two chapters, which deal with the modern myth of the invisible hand without critical questions. Basu compounds his offence against Adam Smith’s legacy by re-naming the welfare theorem (Pareto Optimality) as the ‘invisible hand Theorem’. This theorem had no connection to Adam Smith, with the real world. Basu admits this. The so-called theorem is “ actually a mathematical truism and … has no normative content” (p 24).

This introduces the more positive aspects of Basu’s book: “the limits to orthodoxy”, though he slips back momentarily to describe the “theorem” as “a celebration of individual selfishness”, a perverse statement about Smithian self-interest.

Moving on, Basu’s real target is the “adulatory periphery of the “completely free market”, which Smith did not advocate anyway – he was never a so-called “laissez-faire” theorist. Basu is fighting against a phantom created in his imagination and as the chapter unfolds he covers many themes from modern economic theory worth reading by working economists who are immersed in mathematical dogma about the imaginary world of neoclassical theory.

Smith never showed that ‘”if human beings were completely selfish, society would achieve optimality” p.27), nor did Smith “promise” that by being selfish “we are actually being good to our fellow human beings” (says Duncan Foley [2002, 2]).

Have these people read Moral Sentiments – Smith on the unacceptability of the “justle” – or understood Wealth Of Nations, (p 25-6) on the mediation of self-interest by bargaining?

Quite rightly Basu bemoans the relative scantiness among economists of knowledge about subjects like the influence of ‘norms’ on behaviours which their standard neoclassical training ignores. However, if they had read Adam Smith’s Lectures On Jurisprudence and, of course, Wealth Of Nations carefully beyond a compendium of selected quotations (or had read anything recently by Amartya Sen), they would not suffer from such a deficiency of knowledge about “the role of law and culture” (p. 37).

Basu’s section in Chapter 3 on “Methodological Individualism” is worth reading by all neo-classically-trained economists. Individual utility functions do not simply aggregate across the society, which facilitates the mathematics but not an understanding of the real world. However, the reader should ignore the gratuitous linking of Adam Smith to the theories Basu justly criticises.”